26 U.S.C. § 104 — Compensation for injuries or sickness

Page 536 TITLE 26—INTERNAL REVENUE CODE [§ 103A DISPOSITION OF AMOUNTS GENERATED BY ADVANCE REFUNDING OF CERTAIN GOVERNMENTAL OBLIGATIONS Pub. L. 95–600, title III, § 337, Nov. 6, 1978, 92 Stat. 2842, as amended by Pub. L. 96–222, title I, § 103(a)(8), Apr. 1, 1980, 94 Stat. 212; Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(a) GENERAL RULE.—The payment to a charitable or- ganization of a refund profit held in a trust fund or es- crow arrangement, or held by an underwriter or other person under a qualified agreement in accordance with that agreement— ‘‘(1) shall not cause the refunding obligations out of which the refund profit arose to be treated as arbi- trage bonds (within the meaning of section 103(c) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) and ‘‘(2) may be paid without penalty imposed on the issuer of such obligations. ‘‘(b) RULE FOR GOVERNMENTS WHICH HAVE ALREADY PAID ARBITRAGE PROFITS TO THE UNITED STATES.—In the case of a State or local government which, before January 1, 1977— ‘‘(1) requested in writing a rule by the Internal Rev- enue Service with respect to the tax consequences of paying refund profit to charitable organizations, ‘‘(2) failed to receive a favorable ruling and did not pay the refund profit to a charitable organization, and which accounted to the United States for refund profit by direct payment to the United States, or by the pur- chase of low-interest United States obligations, the Secretary of the Treasury shall pay, out of any amounts in the Treasury not otherwise appropriated, an amount equal to the refund profit for which the State or local government has accounted to the United States. Amounts paid to a State or local government under this subsection shall be distributed to such chari- table organizations within 90 days after the date on which the payment is received by the State or local government in the same manner as if the refund profit had not been paid to the United States and met the re- quirements of subsection (a). ‘‘(c) DEFINITIONS.—For purposes of this section— ‘‘(1) REFUND PROFIT.—The term ‘Refund profit’ means interest, profit, or other amounts generated by, or arising out of, the advance refunding, before September 24, 1976, of an obligation of a State or local government described in section 103 of such Code. ‘‘(2) CHARITABLE ORGANIZATION.—The term ‘chari- table organization’ means an organization described in section 501(c)(3) of such Code and exempt from tax- ation under section 501(a) of such Code other than an organization described in section 509(a) of such Code. ‘‘(3) QUALIFIED AGREEMENT.—The term ‘qualified agreement’ means an agreement (whether or not en- forceable) which provides for, or contemplates, the payment of refund profit to one or more charitable organizations. ‘‘(4) LOW-INTEREST UNITED STATES OBLIGATIONS.— The term ‘low-interest United States obligations’ means United States obligations which bear an inter- est rate lower than the highest rate of interest borne by public debt securities generally available for pur- chase at the time such obligations were purchased.’’ TRANSITIONAL PROVISIONS FOR INDUSTRIAL DEVELOPMENT BONDS ISSUED BEFORE JANUARY 1, 1969 Pub. L. 90–364, title I, § 107(b)(2), June 28, 1968, 82 Stat. 268, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘Section 103(c)(1) of the Inter- nal Revenue Code of 1986 [formerly I.R.C. 1954], as amended by subsection (a) [subsec. (b)(1), formerly sub- sec. (c)(1) of this section], shall not apply with respect to any obligation issued before January 1, 1969, if before May 1, 1968— ‘‘(A) the issuance of the obligation (or the project in connection with which the proceeds of the obliga- tions are to be used) was authorized or approved by the governing body of the governmental unit issuing the obligation or by the voters of such governmental unit; ‘‘(B) in connection with the issuance of such obliga- tion or with the use of the proceeds to be derived from the sale of such obligation or the property to be acquired or improved with such proceeds, a govern- mental unit has made a significant financial commit- ment; ‘‘(C) any person (other than a governmental unit) who will use the proceeds to be derived from the sale of such obligation or the property to be acquired or improved with such proceeds has expended (or has en- tered into a binding contract to expend) for purposes which are related to the use of such proceeds or prop- erty, an amount equal to or in excess of 20 percent of such proceeds; or ‘‘(D) in the case of an obligation issued in conjunc- tion with a project where financial assistance will be provided by a governmental agency concerned with economic development, such agency has approved the project or an application for financial assistance is pending.’’ [§ 103A. Repealed. Pub. L. 99–514, title XIII, § 1301(j)(1), Oct. 22, 1986, 100 Stat. 2657] Section, added Pub. L. 96–499, title XI, § 1102(a), Dec. 5, 1980, 94 Stat. 2660; amended Pub. L. 96–595, § 5(a), (b), Dec. 24, 1980, 94 Stat. 3467; Pub. L. 97–248, title II, § 220(a)–(e), title III, § 310(c)(3), (4), Sept. 3, 1982, 96 Stat. 475, 476, 599; Pub. L. 98–369, div. A, title I, § 42(a)(2), title VI, §§ 611(a)–(c), 612(b), 624(b)(1), July 18, 1984, 98 Stat. 556, 901–903, 911, 924; Pub. L. 99–514, title XVIII, § 1861, Oct. 22, 1986, 100 Stat. 2883, related to mortgage subsidy bonds. See section 143 of this title. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF REPEAL Repeal applicable to bonds issued after Aug. 15, 1986, except as otherwise provided, see sections 1311 to 1318 of Pub. L. 99–514, set out as an Effective Date; Transi- tional Rules note under section 141 of this title. § 104. Compensation for injuries or sickness (a) In general Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include— (1) amounts received under workmen’s com- pensation acts as compensation for personal injuries or sickness; (2) the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness; (3) amounts received through accident or health insurance (or through an arrangement having the effect of accident or health insur- ance) for personal injuries or sickness (other than amounts received by an employee, to the extent such amounts (A) are attributable to contributions by the employer which were not includible in the gross income of the em- ployee, or (B) are paid by the employer); (4) amounts received as a pension, annuity, or similar allowance for personal injuries or sickness resulting from active service in the armed forces of any country or in the Coast and Geodetic Survey or the Public Health Service, or as a disability annuity payable under the provisions of section 808 of the For- eign Service Act of 1980; Page 537 TITLE 26—INTERNAL REVENUE CODE § 104 1 See References in Text note below. (5) amounts received by an individual as dis- ability income attributable to injuries in- curred as a direct result of a terroristic or military action (as defined in section 692(c)(2)); and (6) amounts received pursuant to— (A) section 1201 of the Omnibus Crime Con- trol and Safe Streets Act of 1968 (42 U.S.C. 3796); 1 or (B) a program established under the laws of any State which provides monetary com- pensation for surviving dependents of a pub- lic safety officer who has died as the direct and proximate result of a personal injury sustained in the line of duty, except that subparagraph (B) shall not apply to any amounts that would have been payable if death of the public safety officer had oc- curred other than as the direct and proximate result of a personal injury sustained in the line of duty. For purposes of paragraph (3), in the case of an individual who is, or has been, an employee within the meaning of section 401(c)(1) (relating to self-employed individuals), contributions made on behalf of such individual while he was such an employee to a trust described in section 401(a) which is exempt from tax under section 501(a), or under a plan described in section 403(a), shall, to the extent allowed as deductions under section 404, be treated as contributions by the employer which were not includible in the gross income of the employee. For purposes of paragraph (2), emotional distress shall not be treated as a physical injury or physical sick- ness. The preceding sentence shall not apply to an amount of damages not in excess of the amount paid for medical care (described in sub- paragraph (A) or (B) of section 213(d)(1)) attrib- utable to emotional distress. (b) Termination of application of subsection (a)(4) in certain cases (1) In general Subsection (a)(4) shall not apply in the case of any individual who is not described in para- graph (2). (2) Individuals to whom subsection (a)(4) con- tinues to apply An individual is described in this paragraph if— (A) on or before September 24, 1975, he was entitled to receive any amount described in subsection (a)(4), (B) on September 24, 1975, he was a member of any organization (or reserve component thereof) referred to in subsection (a)(4) or under a binding written commitment to be- come such a member, (C) he receives an amount described in sub- section (a)(4) by reason of a combat-related injury, or (D) on application therefor, he would be entitled to receive disability compensation from the Department of Veterans Affairs. (3) Special rules for combat-related injuries For purposes of this subsection, the term ‘‘combat-related injury’’ means personal in- jury or sickness— (A) which is incurred— (i) as a direct result of armed conflict, (ii) while engaged in extrahazardous service, or (iii) under conditions simulating war; or (B) which is caused by an instrumentality of war. In the case of an individual who is not de- scribed in subparagraph (A) or (B) of para- graph (2), except as provided in paragraph (4), the only amounts taken into account under subsection (a)(4) shall be the amounts which he receives by reason of a combat-related in- jury. (4) Amount excluded to be not less than vet- erans’ disability compensation In the case of any individual described in paragraph (2), the amounts excludable under subsection (a)(4) for any period with respect to any individual shall not be less than the max- imum amount which such individual, on appli- cation therefor, would be entitled to receive as disability compensation from the Veterans’ Administration. (c) Application of prior law in certain cases The phrase ‘‘(other than punitive damages)’’ shall not apply to punitive damages awarded in a civil action— (1) which is a wrongful death action, and (2) with respect to which applicable State law (as in effect on September 13, 1995 and without regard to any modification after such date) provides, or has been construed to pro- vide by a court of competent jurisdiction pur- suant to a decision issued on or before Sep- tember 13, 1995, that only punitive damages may be awarded in such an action. This subsection shall cease to apply to any civil action filed on or after the first date on which the applicable State law ceases to provide (or is no longer construed to provide) the treatment described in paragraph (2). (d) Cross references (1) For exclusion from employee’s gross income of employer contributions to accident and health plans, see section 106. (2) For exclusion of part of disability retirement pay from the application of subsection (a)(4) of this section, see section 1403 of title 10, United States Code (relating to career compensation laws). (Aug. 16, 1954, ch. 736, 68A Stat. 30; Pub. L. 86–723, § 51, Sept. 8, 1960, 74 Stat. 847; Pub. L. 87–792, § 7(d), Oct. 10, 1962, 76 Stat. 829; Pub. L. 94–455, title V, § 505(b), (e)(1), title XIX, § 1901(a)(18), Oct. 4, 1976, 90 Stat. 1567, 1568, 1766; Pub. L. 96–465, title II, § 2206(e)(1), Oct. 17, 1980, 94 Stat. 2162; Pub. L. 97–473, title I, § 101(a), Jan. 14, 1983, 96 Stat. 2605; Pub. L. 101–239, title VII, § 7641(a), Dec. 19, 1989, 103 Stat. 2379; Pub. L. 104–188, title I, § 1605(a)–(c), Aug. 20, 1996, 110 Stat. 1838; Pub. L. 104–191, title III, § 311(b), Aug. 21, 1996, 110 Stat. 2053; Pub. L. 107–134, title I, § 113(a), Jan. 23, 2002, 115 Stat. 2435; Pub. L. 114–14, § 2, May 22, 2015, 129 Stat. 198; Pub. L. 115–141, div. U, title IV, § 401(a)(2)(A), Mar. 23, 2018, 132 Stat. 1184.) Page 538 TITLE 26—INTERNAL REVENUE CODE § 104 Editorial Notes REFERENCES IN TEXT Section 808 of the Foreign Service Act of 1980, re- ferred to in subsec. (a)(4), is Pub. L. 96–465, title I, § 808, Oct. 17, 1980, 94 Stat. 2110, which is classified to section 4048 of Title 22, Foreign Relations and Intercourse. Section 1201 of the Omnibus Crime Control and Safe Streets Act of 1968, referred to in subsec. (a)(6)(A), was classified to section 3796 of Title 42, The Public Health and Welfare, prior to editorial reclassification and re- numbering as section 10281 of Title 34, Crime Control and Law Enforcement. AMENDMENTS 2018—Subsec. (b)(2)(D). Pub. L. 115–141 substituted ‘‘Department of Veterans Affairs’’ for ‘‘Veterans’ Ad- ministration’’. 2015—Subsec. (a)(6). Pub. L. 114–14 added par. (6). 2002—Subsec. (a)(5). Pub. L. 107–134 substituted ‘‘a ter- roristic or military action (as defined in section 692(c)(2)).’’ for ‘‘a violent attack which the Secretary of State determines to be a terrorist attack and which oc- curred while such individual was an employee of the United States engaged in the performance of his offi- cial duties outside the United States.’’ 1996—Subsec. (a). Pub. L. 104–188, § 1605(b), in closing provisions, substituted ‘‘For purposes of paragraph (2), emotional distress shall not be treated as a physical in- jury or physical sickness. The preceding sentence shall not apply to an amount of damages not in excess of the amount paid for medical care (described in subpara- graph (A) or (B) of section 213(d)(1)) attributable to emotional distress.’’ for ‘‘Paragraph (2) shall not apply to any punitive damages in connection with a case not involving physical injury or physical sickness.’’ Subsec. (a)(2). Pub. L. 104–188, § 1605(a), amended par. (2) generally. Prior to amendment, par. (2) read as fol- lows: ‘‘the amount of any damages received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal injuries or sickness;’’. Subsec. (a)(3). Pub. L. 104–191 inserted ‘‘(or through an arrangement having the effect of accident or health insurance)’’ after ‘‘accident or health insurance’’. Subsecs. (c), (d). Pub. L. 104–188, § 1605(c), added sub- sec. (c) and redesignated former subsec. (c) as (d). 1989—Subsec. (a). Pub. L. 101–239 inserted at end ‘‘Paragraph (2) shall not apply to any punitive damages in connection with a case not involving physical injury or physical sickness.’’ 1983—Subsec. (a)(2). Pub. L. 97–473 substituted ‘‘whether by suit or agreement and whether as lump sums or as periodic payments’’ for ‘‘whether by suit or agreement’’. 1980—Subsec. (a)(4). Pub. L. 96–465 substituted ref- erence to section 808 of the Foreign Service Act of 1980 for reference to section 831 of the Foreign Service Act of 1946. 1976—Subsec. (a)(4). Pub. L. 94–455, § 1901(a)(18)(A), struck out ‘‘; 60 Stat. 1021’’ after ‘‘(22 U.S.C. 1081’’. Subsec. (a)(5). Pub. L. 94–455, § 505(e)(1), added par. (5). Subsecs. (b), (c). Pub. L. 94–455, § 505(b), added subsec. (b), redesignated former subsec. (b) as (c) and, as so re- designated, § 1901(a)(18)(B), substituted ‘‘1403 of title 10, United States Code (relating to career compensation laws)’’ for ‘‘402(h) of the Career Compensation Act of 1949 (37 U.S.C. 272(h))’’. 1962—Subsec. (a). Pub. L. 87–792 inserted sentence re- quiring contributions made on behalf of an individual who is, or has been, an employee within the meaning of section 401(c)(1), while he was such an employee to a trust which is exempt from tax, or under a plan de- scribed in section 403(a), to be treated as contributions by the employer which were not includible in the gross income of the employee. 1960—Subsec. (a)(4). Pub. L. 86–723 provided for exclu- sion from gross income of amounts received as a dis- ability annuity payable under the provisions of section 831 of the Foreign Service Act of 1946, as amended. Statutory Notes and Related Subsidiaries CHANGE OF NAME Reference to Veterans’ Administration deemed to refer to Department of Veterans Affairs pursuant to section 10 of Pub. L. 100–527, set out as a Department of Veterans Affairs Act note under section 301 of Title 38, Veterans’ Benefits. Secretary of Health, Education, and Welfare redesig- nated Secretary of Health and Human Services by sec- tion 3508 of Title 20, Education. EFFECTIVE DATE OF 2002 AMENDMENT Pub. L. 107–134, title I, § 113(c), Jan. 23, 2002, 115 Stat. 2435, provided that: ‘‘The amendments made by this section [amending this section and section 692 of this title] shall apply to taxable years ending on or after September 11, 2001.’’ EFFECTIVE DATE OF 1996 AMENDMENT Pub. L. 104–191, title III, § 311(c), Aug. 21, 1996, 110 Stat. 2053, provided that: ‘‘The amendments made by this section [amending this section and section 162 of this title] shall apply to taxable years beginning after December 31, 1996.’’ Pub. L. 104–188, title I, § 1605(d), Aug. 20, 1996, 110 Stat. 1839, provided that: ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section [amending this section] shall apply to amounts received after the date of the enactment of this Act [Aug. 20, 1996], in taxable years ending after such date. ‘‘(2) EXCEPTION.—The amendments made by this sec- tion shall not apply to any amount received under a written binding agreement, court decree, or mediation award in effect on (or issued on or before) September 13, 1995.’’ EFFECTIVE DATE OF 1989 AMENDMENT Pub. L. 101–239, title VII, § 7641(b), Dec. 19, 1989, 103 Stat. 2379, provided that: ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the amendment made by subsection (a) [amending this section] shall apply to amounts received after July 10, 1989, in taxable years ending after such date. ‘‘(2) EXCEPTION.—The amendment made by subsection (a) shall not apply to any amount received— ‘‘(A) under any written binding agreement, court decree, or mediation award in effect on (or issued on or before) July 10, 1989, or ‘‘(B) pursuant to any suit filed on or before July 10, 1989.’’ EFFECTIVE DATE OF 1980 AMENDMENT Amendment by Pub. L. 96–465 effective Feb. 15, 1981, except as otherwise provided, see section 2403 of Pub. L. 96–465, set out as an Effective Date note under section 3901 of Title 22, Foreign Relations and Intercourse. EFFECTIVE DATE OF 1976 AMENDMENT Amendment by section 505(b) of Pub. L. 94–455 appli- cable to taxable years beginning after Dec. 31, 1975, see section 508 of Pub. L. 94–455, set out as a note under sec- tion 3 of this title. Pub. L. 94–455, title V, § 505(e)(2), Oct. 4, 1976, 90 Stat. 1568, provided that: ‘‘The amendments made by this subsection [amending this section] shall apply to tax- able years beginning after December 31, 1976.’’ Amendment by section 1901(a)(18)(A) of Pub. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title. EFFECTIVE DATE OF 1962 AMENDMENT Amendment by Pub. L. 87–792 applicable to taxable years beginning after Dec. 31, 1962, see section 8 of Pub. L. 87–792, set out as a note under section 22 of this title. EFFECTIVE DATE OF 1960 AMENDMENT Pub. L. 86–723, § 56(e), Sept. 8, 1960, 74 Stat. 848, pro- vided that: ‘‘The amendment made by section 51 of this Page 539 TITLE 26—INTERNAL REVENUE CODE § 105 Act [amending this section] shall be effective with re- spect to taxable years ending after the date of enact- ment of this Act [Sept. 8, 1960].’’ Executive Documents CHANGE OF NAME Coast and Geodetic Survey consolidated with Na- tional Weather Bureau in 1965 to form Environmental Science Services Administration by Reorg. Plan No. 2 of 1965, eff. July 13, 1965, 30 FR 8819, 79 Stat. 1318. Envi- ronmental Science Services Administration abolished in 1970 and its personnel, property, records, etc., trans- ferred to National Oceanic and Atmospheric Adminis- tration by Reorg. Plan No. 4 of 1970, eff. Oct. 3, 1970, 35 FR 15627, 84 Stat. 2090. By order of Acting Associate Ad- ministrator of National Oceanic and Atmospheric Ad- ministration, 35 FR 19249, Dec. 19, 1970, Coast and Geo- detic Survey redesignated National Ocean Survey. See notes under section 311 of Title 15, Commerce and Trade. TRANSFER OF FUNCTIONS Functions of Public Health Service, Surgeon General of Public Health Service, and all other officers and em- ployees of Public Health Service, and functions of all agencies of or in Public Health Service transferred to Secretary of Health, Education, and Welfare by 1966 Reorg. Plan No. 3, 31 F.R. 8855, 80 Stat. 1610, effective June 25, 1966, set out in the Appendix to Title 5, Gov- ernment Organization and Employees. § 105. Amounts received under accident and health plans (a) Amounts attributable to employer contribu- tions Except as otherwise provided in this section, amounts received by an employee through acci- dent or health insurance for personal injuries or sickness shall be included in gross income to the extent such amounts (1) are attributable to con- tributions by the employer which were not in- cludible in the gross income of the employee, or (2) are paid by the employer. (b) Amounts expended for medical care Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include amounts referred to in subsection (a) if such amounts are paid, directly or indi- rectly, to the taxpayer to reimburse the tax- payer for expenses incurred by him for the med- ical care (as defined in section 213(d)) of the tax- payer, his spouse, his dependents (as defined in section 152, determined without regard to sub- sections (b)(1), (b)(2), and (d)(1)(B) thereof), and any child (as defined in section 152(f)(1)) of the taxpayer who as of the end of the taxable year has not attained age 27. Any child to whom sec- tion 152(e) applies shall be treated as a depend- ent of both parents for purposes of this sub- section. (c) Payments unrelated to absence from work Gross income does not include amounts re- ferred to in subsection (a) to the extent such amounts— (1) constitute payment for the permanent loss or loss of use of a member or function of the body, or the permanent disfigurement, of the taxpayer, his spouse, or a dependent (as defined in section 152, determined without re- gard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), and (2) are computed with reference to the na- ture of the injury without regard to the period the employee is absent from work. [(d) Repealed. Pub. L. 98–21, title I, § 122(b), Apr. 20, 1983, 97 Stat. 87] (e) Accident and health plans For purposes of this section and section 104— (1) amounts received under an accident or health plan for employees, and (2) amounts received from a sickness and disability fund for employees maintained under the law of a State or the District of Co- lumbia, shall be treated as amounts received through ac- cident or health insurance. (f) Rules for application of section 213 For purposes of section 213(a) (relating to med- ical, dental, etc., expenses) amounts excluded from gross income under subsection (c) shall not be considered as compensation (by insurance or otherwise) for expenses paid for medical care. (g) Self-employed individual not considered an employee For purposes of this section, the term ‘‘em- ployee’’ does not include an individual who is an employee within the meaning of section 401(c)(1) (relating to self-employed individuals). (h) Amount paid to highly compensated individ- uals under a discriminatory self-insured medical expense reimbursement plan (1) In general In the case of amounts paid to a highly com- pensated individual under a self-insured med- ical reimbursement plan which does not sat- isfy the requirements of paragraph (2) for a plan year, subsection (b) shall not apply to such amounts to the extent they constitute an excess reimbursement of such highly com- pensated individual. (2) Prohibition of discrimination A self-insured medical reimbursement plan satisfies the requirements of this paragraph only if— (A) the plan does not discriminate in favor of highly compensated individuals as to eli- gibility to participate; and (B) the benefits provided under the plan do not discriminate in favor of participants who are highly compensated individuals. (3) Nondiscriminatory eligibility classifications (A) In general A self-insured medical reimbursement plan does not satisfy the requirements of sub- paragraph (A) of paragraph (2) unless such plan benefits— (i) 70 percent or more of all employees, or 80 percent or more of all the employees who are eligible to benefit under the plan if 70 percent or more of all employees are eligible to benefit under the plan; or (ii) such employees as qualify under a classification set up by the employer and found by the Secretary not to be discrimi-